Abstract
Though it is widely believed that exchange rate variability reduces welfare, it is difficult to prove this in a formal setting. This paper presents a simple model of job creation and exchange rate uncertainty to illustrate a negative relationship between exchange rate variability and employment. It is argued that volatility matters because employment and investment decisions have some degree of irreversibility. In a second step, various studies on exchange rate variability in the CEECs and the Mercosur region are summarized. The empirical results suggest that exchange rate variability has tangible economic costs.
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Belke, A., Setzer, R. (2004). The Real Impacts of Excessive Exchange Rate Volatility in Emerging Markets. In: Frenkel, M., Karmann, A., Scholtens, B. (eds) Sovereign Risk and Financial Crises. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-662-09950-6_11
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DOI: https://doi.org/10.1007/978-3-662-09950-6_11
Publisher Name: Springer, Berlin, Heidelberg
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